20 March 2025
If you are covering the Bank of England's latest interest rate decision, please see the following comment from Lindsay James, investment strategist at Quilter:
“In line with its counterpart across the pond, the Bank of England has opted to hold rates at 4.5% at its latest monetary policy meeting. Given the continuing uncertainty faced, particularly with expectations for peak 2025 inflation shifting significantly higher to 3.7% at the previous MPC meeting, the Bank’s decision was taken somewhat out of its hands.
“While energy prices have fallen somewhat since then, there remains very little clarity on President Trump’s tariffs and there is a risk that they could prove to be further inflationary. There had been positive comments around the potential for tariff avoidance when Keir Starmer visited the White House, but the UK has since been hit by steel and aluminium tariffs. VAT also appears to be viewed as a variation of a tariff by the US, which risks a response when reciprocal tariffs are announced on 2nd April, so the outlook remains considerably clouded.
“Wage growth data out this morning will also have done little to quell the Bank’s fears. Regular pay, excluding bonuses, rose by 5.9% between November 2024 and January 2025 – still far above the Bank’s 2% inflation target. Elsewhere, however, the labour market is holding up relatively well and unemployment has remained steady.
“Meanwhile, the economy remains under pressure, evidenced by a surprise 0.1% contraction seen in January. With the economy well and truly flatlining, government spending is being forcibly cut to manage the vanishing fiscal headroom. The Spring Statement is now just a week away, and all eyes will be on the Chancellor as she details just how significant the changes will be, and whether there will be any rabbits pulled from hats.
“Market expectations are currently pricing in around two cuts for the remainder of the year, mirroring expectations for the US. The Bank of England will wish to avoid cutting rates too much too quickly for fear of causing further inflationary pressure, so for now this looks reasonable.”
